unit 4 Flashcards
what is an income statement
shows a business’s income and expenditure and therefore if its making a profit or loss over a specific period of time
what is a cash flow statement
shows a business’s sources and movement of cash in and out of a business, over a specific period of time
what is a balance sheet
shows what a business owns and owes, together with the amount invested by shareholders, at a particular moment in time
what is an accounting period
the timeframe for the set of accounts to be reported on
what can an accounting period be
- a calendar
- fiscal year
- week
- month
- quarter
what is income
the total money a business earns from its main operations
what is costs/expenditure
the total money a business spends in order to operate
what is sales turnover
money earned solely from the sale of goods or services over a given period of time
what is revenue
total money earned by a business given period of time
sales turnover =
sales turnover = number of sales x price per unit
what are costs
the total money a business spends in order to operate
what is expenditure
the total money a business spends as payment for goods and/or services
what are operating expenses
costs that are directly involved in the day-to-da operations of a business
what are non-operating expenses
costs that are not related to a business’s core operations
what are direct/variable costs
costs involved in producing the product. do change directly with output
what are indirect/fixed costs
costs that have to be paid even if there is no output. don’t change with output
variable cost =
costs per item x no. of items
total costs =
fixed costs + variable costs
what are costs of goods (COGS)
all the direct/variable costs incurred by a business in a specific period of time
what is overheads
ongoing business expenses that are not directly tied to production i.e. fixed costs
what is profit
revenue is more than expenditure
what is loss
revenue is less than expenditure
profit =
revenue - expenditure
what is gross profit
the profit a business makes after deducting the cost of sales from revenue
what is net profit
the gross profit, plus any other income, minus all other expenses
gross profit =
revenue - cost of sales
net profit =
gross profit - expenses
what is cash flow forecast
predicts potential cash floe in the future based on financial objectives
what is cash floe statement record of
its a record of actual money transfers that demonstrates the real cash floe position of the business
what is inflow
money that is entering the business
what is outflows
money that is leaving the business
what is positive cash flow
the business has money in the bank. inflows are more than outflows
what is negative cash flow
the business is in an overdraft (debt) situation. inflows are less than outflows
what is the closing balance
the amount of money present in a financial repository.
what is a small, positive balance
the business can afford to pay its bills and has little danger of going bankrupt
what is a large, positive balance
there is money available fir investment or expansion
what is small negative balance
money may have to be borrowed, at least for the short term
what is large, negative balance
the business cannot pay its way and may go bankrupt unless urgent action is taken
what are assets
items of value that a business owns, creates or benefits from
what are liabilities
a business’s debts or obligations i.e. what a business owes
what are current assets
short-term assets used in the day-to-day running of the business and expected to be used within one year to create more revenue
what are fixed assets
long-term assets with a useful life for longer than one year
what are current liabilities
creditors that must be paid within one year
what are long-term liabilities
creditors that are paid after more than one year
net current assets (working capital) =
current assets - current liabilities
net assets (capital) =
total assets - total liabilities
what is retained profit
the amount of net income kept in the business to be reinvested rather than distributed to the owners or shareholders as dividends
what is a profit margin
ratios that measures the degree to which a business is actually making money - its profitability
shows what percentage of its sales has generated profits
what is 5% profit margin considered
low
what is 10% profit margin considered
average
what is 20% profit margin considered
good
what is 50-70% profit margin considered
healthy
what is gross profit margin
the percentage ratio of revenue a business keeps for each sale after all direct costs are deducted
what is net profit margin
the percentage ratio of revenue that is left after all costs are deducted
gross profit margin =
gross profit / revenue x 100
net profit margin =
net profit / revenue x 100
what is break-even point
where total costs equal total revenue
what is break-even analysis
a management decision tool to help understand the minimum levels of production/sales required to avoid losses
break-even units =
fixed costs / (sales per unit - variable costs per unit)
break-even point sales value =
(selling price x fixed costs / contribution margin
contribution margin =
sales price per unit - variable cost per unit
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